AmerCareRoyal - Market Update Q3 2021

Market Update

Quarter 3 - 2021

Product-to-Market Pathway

SUMMARY: Economic recovery in 2021 is increasingly threatened by rampantly increasing supply chain cost. Spiking prices for raw materials, labor shortages in manufacturing, and alarming rates of COVID reemergence are stubbornly challenging businesses across all industries and are defining the wildly volatile and unreliable global supply chain environment for the remainder of 2021.

Severity Scale

Low

Moderate

High

Factory-to-Port Outbound Logistics

Ocean Transport Inbound to North America

DC-to-Customer Outbound Logistics

Raw Materials

Manufacturing

Plastic resin cost increases have passed to manufacturers each month in 2021 and Paper-pulp and Aluminum supplies are constrained and

Coronavirus variants and pandemic limits on foreign workers are driving production shutdowns and labor shortages across several manufacturing regions.

Wide-spread delays and escalating costs for transporting freight from factory-to-port due to shipping container and handling equipment shortages. Yantian / Shenzhen port shut down in May due to COVID worsening global supply chain chaos.

Cargo berths on ships are extremely constrained, forcing premiums paid by shippers upwards of $20,000 per container load. On-time arrival averages remain below 40%, all-time

Continued severe congestion is driving

loading & unloading ‘dwell’ time for trucks at ports to 2X-normal rates and inland terminal log-jams, equipment shortages and wildfires are doubling rail trip times from port to destination across North America.

lows for this critical performance metric.

costs are up, significantly.

Prices paid for raw material inputs have increased across all major product substrates each month since the start of this year.

Raw Material

Affected Product Lines

Material Cost Rate of Change since January ‘21

Aluminum

Foil sheets, lids, wraps

20 – 30+%

Paper, Paper-Pulp and Paper Board Polypropylene, HDPE, LDPE, Resin, Polystyrene, PVC

Napkins, Placemats, Folded Takeout Boxes, Guest Checks, Register Rolls, Wipers, Towels, Filters, Packaging for all products

20-30+%

Cutlery, Cups & Lids, Takeout Packaging, Stirrers, Straws

10+%

Bagasse Fiber

Eco-friendly Takeout packaging and Cutlery

30+%

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Inbound Shipping and Logistics

The Ocean Freight Logistics of Importing Products from Asia

As reported in our June Special Market Update, importers are dealing with a global supply chain mess. Rampant escalation in ocean freight expense, limited space on ships, backlogged ports, twice-normal time for products to reach inland hubs … non -stop headaches with no quick, easy or inexpensive solution.

▪ HIGH-DEMAND Imports from Asia at record levels for 10 consecutive months, North American consumer demand up over 27% in 2021. April shipping volume from Asia to North America rose 53% vs. 2020, 44% vs. 2019. (WSJ) ▪ LOW-CAPACITY Shipping container availability remains constrained, with too few in-number, and too many tied up in port backlogs. As result, trans- pacific berths to move finished goods from Asia to North America are scarce and costly. ▪ COSTS ARE HIGH … Average ocean berth prices are now well over $10,000, 6 times higher than a year ago. Expect to see $20,000 rates soon and don’t look for rate reductions to come this year, nor anything approaching pre-pandemic until possibly 2023. (Souhang APP, DC Velocity) ▪ … AND DELIVERY RELIABILITY IS LOW Transit time for cargo from start of packing in Shanghai through to delivery in Chicago has risen from 35 days pre-COVID to 73 days now. Global schedule reliability has dipped under 39%, down from routine averages above 75% prior to mid-2020. (Flexport, Sea- Intelligence) ▪ A FRAGILE SYSTEM New coronavirus outbreaks in China’s major manufacturing center, Guangdong Province and its port complex at Yantian caused world-wide disruption to the ocean freight system already proving costlier than the $10 billion per day impact of the two-week Suez Canal blockage in March. ▪ PROFITEERING Shipping industry consultants have noted geo-political and economic leverage present in the situation for various industry players and predict on-going delays in scheduled ship sailings, unplanned changes to port-calls, mid-voyage re-routings and recurring instances of ships skipping ports altogether to route elsewhere for more profitable cargo loads. (Total Logistix)

Composite Container Cost Index - Worldwide

(Drewry)

Global Schedule Reliability – Ocean Container Shipping

(Sea Intelligence)

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Outbound Shipping and Logistics

The Domestic Transportation and Warehousing Logistics of Delivering Products to North American Customers

Getting products to customers across North America now takes twice as long and is much more expensive.

RECORD PORT VOLUME The Port of Los Angeles processed 10 million containers in a 12-month period for the first time in May and diversion of ships to other West Coast ports, Oakland, Seattle/Tacoma and Vancouver has spiked volume and slowed normal processing times. (Maritime Advisor)

Percent Increases in Truckload Freight Prices

RAIL TIMES ARE LONGER, SERVICE IS INTERRUPTED

Train service from ocean ports to inland hubs have reeled from surging container volume. AmerCareRoyal logistics managers report a doubling since Q1 of average transit times from Los Angeles / Long Beach to Dallas, a shipping leg normally 12 days long to over 24 days in June. Union Pacific suspended rail shipments to its intermodal hub in Chicago for a week in July to enable ocean carriers time to untangle container logjams. System-wide, rail line and rail car capacity shortages have become problematic and in Canada, wildfires shut down CN and Canadian Pacific rail service to and from Port of Vancouver, further stressing the dispersion of cargo to the interior. (Freightwaves, Hapag-Lloyd, American Shipper)

DRIVER SHORTAGE & HIGHER LABOR COST

63,000 long-haul truck driver positions are unfilled, limiting available over-the-road shipping capacity, leading to record-high shipping contract rates.. (Coyote)

FUEL PRICES ARE UP Price of diesel fuel rose 38.5%, November-to-July, crude oil prices currently at highest level since Q3 2018. (Barron’s, US Energy Information Administration) SHIPPING SUPPLIES COST MORE Springtime shortages of lumber limited availability, drove up cost for pallets, and cost for shrink film and corner board, essential shipping and warehousing supplies, have shot up due to resin and paper pulp raw material cost inflation. (Transportationinsight.com)

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Summary Takeaways

▪ New COVID variants and resurgence of outbreaks pose potential threats to smooth and full recovery. ▪ Global supply chain disruption and chaos is driving extreme levels of non-raw material inflation into the cost of importing products to North America. This situation will remain this way for many more months. ▪ Rates of inflation in the US and Canada to this point in the year are 5.4% and 3.6%, respectively, both the highest in a decade, and indications are strong that inflationary pressures will persist throughout the supply chain beyond 2021.

AmerCareRoyal is hard at work doing all we can to mitigate these challenges for our customers. By prioritizing critical cargo, relentlessly optimizing cargo shipping configurations, searching and securing alternative port-of-call options, and leveraging our manufacturing and carrier networks, ACR provides practical, effective supply solutions that speed delivery and minimize cost.

AmerCareRoyal Recommendations for Customers

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Diligently monitor and pass along price increases; act decisively to stay apace with the rate of inflation.

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Work closely with your customers to understand their demand and plan your inventory investments accordingly.

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Maintain day-by-day flexibility to base selling and marketing on products & supplies that are available right now.

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Monitor industry information sources for forecasts on raw material and supply chain costs.

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